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Friday 29 October 2010
Thursday 14 October 2010
Success factors for financial sustainability of toll road project in China
The rapid growth of the Chinese economy calls for massive development of infrastructure and assets. Over the past 10 years a national trunk highway system and a network of urban and provincial expressways have emerged in China (World Bank, 2003). A World Bank (2003) research estimated that highway investments in China significantly increased in the late 1990s and reached 2.5 percent of GDP. Still, an estimated $75-100 billion needs to be invested in highway construction over the next 15 years. Toll road is one of infrastructure project that has high ability to attract private investment since it is able to recover directly the costs of its operation and construction through toll charges. While this brings a lot of opportunities to project stakeholders, it also contains various risks that can bring the result that the real project outcomes are very much lower than the expected.
Ms. Truong Thi My Thanh made a study which main objective was to develop the model of success factors for Chinese toll roads to achieve financial sustainability in planning and executing stages and recommend proper consideration from key stakeholders to ensure that toll road project can be sustainable and more attractive to private investment. To complete the main objectives, following sub objectives were explored:
1. Investigate the cost and financial performance of toll roads in China to find out significant attributes influence on the difference of estimated and actual outcomes
2. Investigate the impact of above factors to project finance for short term and long term sustainability.
3. To propose the model for financial sustainability of toll roads in China and provide recommendations for policy makers, international lending institutes and toll road developers as required consideration in planning stage to enhance the certain of financial condition and control the financial sustainability in executing stage.
Conclusions
Toll road is one of infrastructure project that has high ability to attract private investment since it is able to recover directly the costs of its operation and construction through toll charges. Toll road development can be attractive to investors and lenders only if the financial and economic benefit can be met. Financial sustainability is the essential part of this entire criterion, with many attributes should be considered. It is true that the financial sustainability of toll road depends on the performance of all stakeholders involve in project from initial phase to the end of project life cycle. Planning and executing stages are the most important and have high impact to project financial sustainability. Proper considerations to the significant attributes in these two stages need to be taken from involved stakeholders to ensure that long-term survival and sustainability are achieved.
The purpose of studying toll road performance and the impact to financial sustainability is to (1) indentify the significant factors impact to project financial sustainability in planning and executing stages, and (2) recommend proper consideration from key stakeholders to ensure that toll road project can be sustainable and more attractive to private investment.
The study was carried out by examining seven Chinese toll roads with different development model. The focus was to investigate toll road development model, the participation of stakeholders and the risks they had to face with. After that, in-depth analysis is on (1) financial sources (2) financial usages and investment cost variation (3) revenue base (4) operating performance (5) financial benefit and (6) financial sustainable situation. Those attributes were investigated in combination with the involvement of key stakeholders related to projects. A qualitative research was prepared where the data collection techniques are case studies.
From the analysis, the factors impact to project financial sustainability can be divided into five levels (1) Policy support (2) Regional development (3) Fund raising model (4) Project development (5) Financial structure. All these factors are essentially important for project developer’s consideration.
Policy support: This factor covers four significant attributes (1) Government assurance (2) Land acquisition and resettlement policy (3) Toll rate structure and tolling adjustment and (4) Penalty regulation for truck over load. Government assurance provides the legal support to negotiate with ADB/WB to get the loan. The policy support for land acquisition activities reduces the risks of delay and cost overrun. Additionally, the proper toll rate setting and fixed frequency of tolling adjustment ensure the certainty of revenue stream and help toll road developer can foresee the profit. Lastly, the strictly penalty is needed for truck over loading to reduce the maintenance cost of toll roads.
Regional development: Financial sustainability extremely depends on the certainty of project revenue stream which significantly impacted by master plan of regional development. The study found that appropriate point time of investment base on socio-economic situation ensures proper traffic flow after toll road start to operate. Additionally, toll road projects constructed in combination with the upgrading of local toll road network and industrial zones promise the high traffic growth rate and higher revenue stream in the future.
Fund raising model: The study found out that securitisation model for Chinese toll road development has the highest level of long term financial sustainability, because the local government provides very high level of grant and subsidy. Government build and operate model has quite high ability of financial sustainability but lower than securitisation model. Project establishes very high level of contingencies budget even the total cost will increase. Additionally, local government subsidise the over budget of construction cost, hence there will no increase in short term debt and current liabilities. Cooperative joint venture model of toll road in China has lowest level of financial sustainability since it uses very high debt to equity ratio; the debt mostly comes from domestic bank with high interest rate and high interest during construction. Project is developed separately with the improvement of local road network and the expansion of industrial zones because there is limited source of fund of investors.
Project development: It was found that four significant problems closely go along with the development of toll road project, they are inappropriate preparing in feasibility study, improper land acquisition planning, delay in land acquisition implementation and not timely approval of works variations and equipment procurement from ADB/WB. Changes between feasibility design and detailed design because of improper feasibility preparation was the most significant reason caused civil work and land acquisition cost overrun. Resettlement plan, compensation standard and the difference in acquiring temporary and permanent land was carried out ineffectively caused over budget of land cost. Limited budget contributes to the delay of land acquisition activities. The delay of project completion also involved with the insufficient feedback on report ADB/WB required from project executing agency hence delay in resolving problems and difficulties that occurred during project implementation.
Financial structure: This factor covered five significant attributes; they were (1) Debt to equity ratio of capital investment, (2) Government grant, (3) Source of debt, (4) Source of equity and (5) emergency budget for financial consumption overrun. It was found that the D/E split which was used to develop toll road project in China mostly based on the financial health of local government rather than the ability to generate revenue of project itself. The grant from central government was just used to improve some section of feeder roads, hence the amount mostly based on the length and socio-economic condition of the projects while grant from local government was significantly based on the benefit that local government could receive from project. The result showed that the amount of ADB/WB loan had very high impact to financial structure of investment capital since it reduces the debt from domestic bank and the percentage of grant. The study also found out that local government was not yet successful to attract private participation since equity from private sectors still played minor part of investment capital. When project got construction cost overrun project owners used three sources of emergency budget cover investment overrun, they were short term loan from domestic banks, local government subsidy and contingencies budget. Government build and operate model used highest contingencies budget and received fully support in the context of subsidy from local government. Whereas cooperative joint venture model had to find the loan from domestic bank since it used low contingencies budget and not received any subsidy from local government.
Recommendations for critical factors model
The development model for financial sustainability of Chinese toll road has been structured in considering long term and short term impact. Based on the findings from the information of diverse situation, the model has been structured on policy support, regional development, organisational model, project development and financial structure levels. The recommendations for key stakeholders involves in toll road project have also been provided to enhance the financial sustainability of toll road development. The applicability of critical factors model will help policy makers, toll road developers and international lending organisation (ADB and WB) to foresee the sustainability of financial condition of toll road in planning stage through proper master plan for regional development, policy support and effective organisational model. Additionally, the findings also help toll road developers to control and enhance the financial sustainability in executing stage through the risk mitigation instrument in each development step, proper financial structure of investment capital and appropriate sources of fund as emergency budget for financial consumption overrun. Lastly, the applicability of the findings not only used for Chinese toll road developers but for stakeholders in other emerge economy countries as well.
Ms. Truong Thi My Thanh made a study which main objective was to develop the model of success factors for Chinese toll roads to achieve financial sustainability in planning and executing stages and recommend proper consideration from key stakeholders to ensure that toll road project can be sustainable and more attractive to private investment. To complete the main objectives, following sub objectives were explored:
1. Investigate the cost and financial performance of toll roads in China to find out significant attributes influence on the difference of estimated and actual outcomes
2. Investigate the impact of above factors to project finance for short term and long term sustainability.
3. To propose the model for financial sustainability of toll roads in China and provide recommendations for policy makers, international lending institutes and toll road developers as required consideration in planning stage to enhance the certain of financial condition and control the financial sustainability in executing stage.
Conclusions
Toll road is one of infrastructure project that has high ability to attract private investment since it is able to recover directly the costs of its operation and construction through toll charges. Toll road development can be attractive to investors and lenders only if the financial and economic benefit can be met. Financial sustainability is the essential part of this entire criterion, with many attributes should be considered. It is true that the financial sustainability of toll road depends on the performance of all stakeholders involve in project from initial phase to the end of project life cycle. Planning and executing stages are the most important and have high impact to project financial sustainability. Proper considerations to the significant attributes in these two stages need to be taken from involved stakeholders to ensure that long-term survival and sustainability are achieved.
The purpose of studying toll road performance and the impact to financial sustainability is to (1) indentify the significant factors impact to project financial sustainability in planning and executing stages, and (2) recommend proper consideration from key stakeholders to ensure that toll road project can be sustainable and more attractive to private investment.
The study was carried out by examining seven Chinese toll roads with different development model. The focus was to investigate toll road development model, the participation of stakeholders and the risks they had to face with. After that, in-depth analysis is on (1) financial sources (2) financial usages and investment cost variation (3) revenue base (4) operating performance (5) financial benefit and (6) financial sustainable situation. Those attributes were investigated in combination with the involvement of key stakeholders related to projects. A qualitative research was prepared where the data collection techniques are case studies.
From the analysis, the factors impact to project financial sustainability can be divided into five levels (1) Policy support (2) Regional development (3) Fund raising model (4) Project development (5) Financial structure. All these factors are essentially important for project developer’s consideration.
Policy support: This factor covers four significant attributes (1) Government assurance (2) Land acquisition and resettlement policy (3) Toll rate structure and tolling adjustment and (4) Penalty regulation for truck over load. Government assurance provides the legal support to negotiate with ADB/WB to get the loan. The policy support for land acquisition activities reduces the risks of delay and cost overrun. Additionally, the proper toll rate setting and fixed frequency of tolling adjustment ensure the certainty of revenue stream and help toll road developer can foresee the profit. Lastly, the strictly penalty is needed for truck over loading to reduce the maintenance cost of toll roads.
Regional development: Financial sustainability extremely depends on the certainty of project revenue stream which significantly impacted by master plan of regional development. The study found that appropriate point time of investment base on socio-economic situation ensures proper traffic flow after toll road start to operate. Additionally, toll road projects constructed in combination with the upgrading of local toll road network and industrial zones promise the high traffic growth rate and higher revenue stream in the future.
Fund raising model: The study found out that securitisation model for Chinese toll road development has the highest level of long term financial sustainability, because the local government provides very high level of grant and subsidy. Government build and operate model has quite high ability of financial sustainability but lower than securitisation model. Project establishes very high level of contingencies budget even the total cost will increase. Additionally, local government subsidise the over budget of construction cost, hence there will no increase in short term debt and current liabilities. Cooperative joint venture model of toll road in China has lowest level of financial sustainability since it uses very high debt to equity ratio; the debt mostly comes from domestic bank with high interest rate and high interest during construction. Project is developed separately with the improvement of local road network and the expansion of industrial zones because there is limited source of fund of investors.
Project development: It was found that four significant problems closely go along with the development of toll road project, they are inappropriate preparing in feasibility study, improper land acquisition planning, delay in land acquisition implementation and not timely approval of works variations and equipment procurement from ADB/WB. Changes between feasibility design and detailed design because of improper feasibility preparation was the most significant reason caused civil work and land acquisition cost overrun. Resettlement plan, compensation standard and the difference in acquiring temporary and permanent land was carried out ineffectively caused over budget of land cost. Limited budget contributes to the delay of land acquisition activities. The delay of project completion also involved with the insufficient feedback on report ADB/WB required from project executing agency hence delay in resolving problems and difficulties that occurred during project implementation.
Financial structure: This factor covered five significant attributes; they were (1) Debt to equity ratio of capital investment, (2) Government grant, (3) Source of debt, (4) Source of equity and (5) emergency budget for financial consumption overrun. It was found that the D/E split which was used to develop toll road project in China mostly based on the financial health of local government rather than the ability to generate revenue of project itself. The grant from central government was just used to improve some section of feeder roads, hence the amount mostly based on the length and socio-economic condition of the projects while grant from local government was significantly based on the benefit that local government could receive from project. The result showed that the amount of ADB/WB loan had very high impact to financial structure of investment capital since it reduces the debt from domestic bank and the percentage of grant. The study also found out that local government was not yet successful to attract private participation since equity from private sectors still played minor part of investment capital. When project got construction cost overrun project owners used three sources of emergency budget cover investment overrun, they were short term loan from domestic banks, local government subsidy and contingencies budget. Government build and operate model used highest contingencies budget and received fully support in the context of subsidy from local government. Whereas cooperative joint venture model had to find the loan from domestic bank since it used low contingencies budget and not received any subsidy from local government.
Recommendations for critical factors model
The development model for financial sustainability of Chinese toll road has been structured in considering long term and short term impact. Based on the findings from the information of diverse situation, the model has been structured on policy support, regional development, organisational model, project development and financial structure levels. The recommendations for key stakeholders involves in toll road project have also been provided to enhance the financial sustainability of toll road development. The applicability of critical factors model will help policy makers, toll road developers and international lending organisation (ADB and WB) to foresee the sustainability of financial condition of toll road in planning stage through proper master plan for regional development, policy support and effective organisational model. Additionally, the findings also help toll road developers to control and enhance the financial sustainability in executing stage through the risk mitigation instrument in each development step, proper financial structure of investment capital and appropriate sources of fund as emergency budget for financial consumption overrun. Lastly, the applicability of the findings not only used for Chinese toll road developers but for stakeholders in other emerge economy countries as well.
Thursday 7 October 2010
Quality Management in Construction Projects: A Case Study of Quality Management in Construction Projects of an Oil and Gas Company
Currently, although businesses involved in construction activities apply quality management systems, but in practice there are a lot of poor works that worry people and society. Consequences of poor quality will damage property and waste money of business and community, and it also cause danger to people.
To ensure the effective application of quality management for construction projects, it requires the strong commitment of business leaders and implementation of multiple solutions. Applying this effective quality management will bring many potential benefits for businesses. Mr. Le Van Thong made a research which main objectives were: (1) determination of quality management activities in the construction in the Oil and Gas Company; and (2) to discuss and review the effectiveness of quality management in construction of the Oil and Gas Company
Conclusions
Quality management system has been applied by PTSC companies in their projects. It brings success to the company for many years now, and became a famous company in the international market in oil and gas technical services industry in Vietnam. They are the useful tools to avoid and mitigate problems and to improve quality performances of the following projects. They are the principles that management use to achieve effective cost control, quality control, schedule control etc. Many civil and industry construction Corporations, companies in developed countries have been applied the successful Quality Management and got more profits and reduced lost time and cost for reworks. They recognize the importance of the Quality Management and have responsibilities to identify, assess, prevent and manage all breakdowns and risks to projects, damage to property and working environment.
The quality improvement programs establish actions for achieving the objectives and targets, in line with the policy commitment of continuous improvement. When establishing targets, the following will be taken into consideration:
- Who do? How? Who supervise the provision of information; as executive / coordination / control is assigned in advance and all agents involved must comply.
- The system clearly and closely flexibility have created a positive consequence of works completed on schedule, ensure quality and safety.
Effectiveness of the implementation quality management:
After implementation of the quality management, there are some achieved results as below:
1. Quality Assurance is to obtain completed construction that meets all contract requirements. Assurance is defined as a degree of certainty. Quality assurance personnel continually assure that the contractor's works comply with contract requirements.
2. Quality Control is the successful execution of a realistic plan to ensure that the required standards of quality construction will be met. In QC, the contractor defines procedures to manage and control his own, designer of record, consultant, architect-engineer, all subcontractor and all supplier activities so that the completed project complies with contract requirements. For design-build contracts, this includes providing and maintaining a Design Quality Control plan as a part of the overall contract QC plan. This plan, as a minimum, must assure that all documents are reviewed by a technically competent independent reviewer specifically named in the plan. This review cannot be performed by the same designers that produced the product. The design QC plan must be managed by a Design QC Manager who has verifiable engineering or architectural design experience or is a registered engineer or architect. The Design QC Manager is under the supervision of the QC Manager.
Recommendations
1. The performance of Quality Management must be carried out permanently in the company to prevent all budget overrun, progress slow, reworks maybe happening from the existing projects and future projects.
2. The performance of Quality Management must be concerned from the top management to everybody in the company.
3. Examine the quality control methods being used to determine if the contractor is properly controlling design activities in design-build contracts.
4. Examine the quality control methods being used to determine if the contractor is properly controlling construction activities.
5. Make certain that the necessary changes are made in the contractor's QC system, if excessive construction deficiencies occur.
6. Assist the contractor in understanding and implementing the contract requirements.
7. Examine ongoing and completed work.
8. Produce the quality specified in the plans and specifications and for design-build contracts in the Request for Proposal, as well as the contractor's accepted proposal.
9. Develop and maintain an effective QC system.
10. Perform all control activities and tests.
11. Prepare acceptable documentation of QC activities.
His thesis abstract is copied and posted.
Abstract
In an organization or business will have a lot of construction projects, any project also is importance. Ensure the quality of the project is very important for each organization. Aware of that, the quality management has been applied widely in their construction projects. But how apply the successful model of quality management for a construction project that is still a big question.
Organizations in Vietnam as some other countries, in fact, the signers disclaim the possibility of anticipating and detailing everything in the construction documents. Second, it is unstable for the construction environment. The complexity and size of project vary. Working conditions cannot be somewhat control. The employee is variable; its composition, motivation and size change. Cooperation between contractor and subcontractors is problematic. Those will affect the quality management of construction projects and it makes the project to delay, re-work and increase cost.
So, how to manage the quality of the construction project effectively? This thesis will research about quality management in construction project through theory and real case that is applied in PTSC Production Services Company.
To ensure the effective application of quality management for construction projects, it requires the strong commitment of business leaders and implementation of multiple solutions. Applying this effective quality management will bring many potential benefits for businesses. Mr. Le Van Thong made a research which main objectives were: (1) determination of quality management activities in the construction in the Oil and Gas Company; and (2) to discuss and review the effectiveness of quality management in construction of the Oil and Gas Company
Conclusions
Quality management system has been applied by PTSC companies in their projects. It brings success to the company for many years now, and became a famous company in the international market in oil and gas technical services industry in Vietnam. They are the useful tools to avoid and mitigate problems and to improve quality performances of the following projects. They are the principles that management use to achieve effective cost control, quality control, schedule control etc. Many civil and industry construction Corporations, companies in developed countries have been applied the successful Quality Management and got more profits and reduced lost time and cost for reworks. They recognize the importance of the Quality Management and have responsibilities to identify, assess, prevent and manage all breakdowns and risks to projects, damage to property and working environment.
The quality improvement programs establish actions for achieving the objectives and targets, in line with the policy commitment of continuous improvement. When establishing targets, the following will be taken into consideration:
- Who do? How? Who supervise the provision of information; as executive / coordination / control is assigned in advance and all agents involved must comply.
- The system clearly and closely flexibility have created a positive consequence of works completed on schedule, ensure quality and safety.
Effectiveness of the implementation quality management:
After implementation of the quality management, there are some achieved results as below:
1. Quality Assurance is to obtain completed construction that meets all contract requirements. Assurance is defined as a degree of certainty. Quality assurance personnel continually assure that the contractor's works comply with contract requirements.
2. Quality Control is the successful execution of a realistic plan to ensure that the required standards of quality construction will be met. In QC, the contractor defines procedures to manage and control his own, designer of record, consultant, architect-engineer, all subcontractor and all supplier activities so that the completed project complies with contract requirements. For design-build contracts, this includes providing and maintaining a Design Quality Control plan as a part of the overall contract QC plan. This plan, as a minimum, must assure that all documents are reviewed by a technically competent independent reviewer specifically named in the plan. This review cannot be performed by the same designers that produced the product. The design QC plan must be managed by a Design QC Manager who has verifiable engineering or architectural design experience or is a registered engineer or architect. The Design QC Manager is under the supervision of the QC Manager.
Recommendations
1. The performance of Quality Management must be carried out permanently in the company to prevent all budget overrun, progress slow, reworks maybe happening from the existing projects and future projects.
2. The performance of Quality Management must be concerned from the top management to everybody in the company.
3. Examine the quality control methods being used to determine if the contractor is properly controlling design activities in design-build contracts.
4. Examine the quality control methods being used to determine if the contractor is properly controlling construction activities.
5. Make certain that the necessary changes are made in the contractor's QC system, if excessive construction deficiencies occur.
6. Assist the contractor in understanding and implementing the contract requirements.
7. Examine ongoing and completed work.
8. Produce the quality specified in the plans and specifications and for design-build contracts in the Request for Proposal, as well as the contractor's accepted proposal.
9. Develop and maintain an effective QC system.
10. Perform all control activities and tests.
11. Prepare acceptable documentation of QC activities.
His thesis abstract is copied and posted.
Abstract
In an organization or business will have a lot of construction projects, any project also is importance. Ensure the quality of the project is very important for each organization. Aware of that, the quality management has been applied widely in their construction projects. But how apply the successful model of quality management for a construction project that is still a big question.
Organizations in Vietnam as some other countries, in fact, the signers disclaim the possibility of anticipating and detailing everything in the construction documents. Second, it is unstable for the construction environment. The complexity and size of project vary. Working conditions cannot be somewhat control. The employee is variable; its composition, motivation and size change. Cooperation between contractor and subcontractors is problematic. Those will affect the quality management of construction projects and it makes the project to delay, re-work and increase cost.
So, how to manage the quality of the construction project effectively? This thesis will research about quality management in construction project through theory and real case that is applied in PTSC Production Services Company.
Monday 4 October 2010
Investigation of Change Order Management: A Case Study of Oil & Gas Projects
Oil and gas project is very complex and changes could easily happen anytime. These projects mostly are huge with many phases such as engineering, procurement, fabrication, installation, pre-commissioning, commissioning for offshore facilities, and oil and gas platforms. They are considered to be very risky because of their complications and difficult conditions with high level of safety and requires big amount of money. Therefore cause of changes should be identified and classified.
Mr. Le Dang Thuc made a research which main objective was to study the change order management in EPC Oil & Gas Projects. The other objectives of his research were to: (1) investigate the different kinds of change order in oil and gas project; (2) assess the impact of change order in terms of cost and time; (3) investigate the change order process in oil and gas project; and (4) recommend ways to improve change order management in oil and gas.
Conclusion
Administering impact of change order in EPC oil and gas project is very significant to reduce time and cost and guarantee the success of the project. In order to do that, management of cost and time attached special importance to invest and innovate. There are five key concepts to manage impact with cost such as design cost breakdown structure, cost estimating, setting contingency, cost monitoring & control. The setting of contingency in contract price is to cover the cost in order to reduce risk and the unforeseeable events. To manage change order in term of time, the baseline and progress must be updated and reported.
In this study, several cause of change order were identified: alteration to specification, alteration to scope of work, alteration to contract, alteration to schedule, in which activity is unsafe under certain conditions; activity does not meet legal or regulatory requirements and others (example weather, political climate, etc).
Impacts of change order
According to five case studies, the impacts of change order in terms of additional cost are alteration to Scope of Work, alteration to Specification, others (Bad weather, Crane broken), and activity is unsafe under certain conditions. While the impacts of change order in terms of time are alteration to scope of work and others (Bad weather, broken Crane). Frequent types of change order were also identified such as alteration to scope of work, alteration to specification; activity is unsafe under certain conditions, Others (Bad weather, broken Crane), and alteration to schedule.
Time and cost impacts play an important role to prevent more extra time and cost during the execution. In CNV cases, it showed that the cost impact in construction phase is almost always high, as it is related to changes in costs of materials, risks in construction, designing, under pressure of schedule progress, and labor requirements during certain times of year, etc. Contract management is very complex and involves many phases, especially in oil and gas projects. Factors such as time, cost and quality have been managed strictly and change order forms are core parts of contract administration.
After studying and analyzing five different case studies, it has been found that the main cause of change order is the alteration to scope of work (78%). This happens due to reason such as change decision, change basis of design, location, and lack of estimation of scope of work. Alteration to scope of work is also the most cautious change order. This should pay more attention in contract dealings and should avoid happening. If there are alterations to scope of work, it will affect so much to project in term of cost and scheduling of project. Alteration to scope of work should be reduced and become a lessons learned for future project.
Change Order Process
Change order procedure is very significant to manage changes. This thesis shows a procedure for oil and gas project with 3 scenarios:
1. Client Originated changes - In the event that the Client requests the Contractor to prepare an estimate for a potential change, it shall be made formally by an instruction in writing from the Client. After the review and data input including time and cost, cause of change, the contractor will send VR to client for approval within a time frame. The client will check the VR with their requirement and issue a Variation order to execute project.
2. Contractor originated changes - Contractor identifies the change. They check the change in terms of time and cost, the relation with Client account, and then send to Client for review and approval. Within reasonable time, Client shall endorse the VR and return to Contractor. Client will follow this up with the issuance of VO.
3. Subcontract related changes - When changes occur, Subcontractor may consider giving rise to a claim for additional costs. The Subcontractor will immediately notify the Contractor via official communication. The Contractor responds by reviewing and approves the SVR.
These procedures will help company to be ready to cope with the change, as well as support for smooth execution of the project. To implement this procedure, all member need to understand and each step must be clear. To improve change order, system should be audited many times and innovated after seeing the mistake of sequence. The Project manager responds to guide all parties and all member of project team for clear and ready application.
Recommendation
In order to reduce change order, the project management system should be improved and include the following factors:
His thesis abstract is copied and posted.
Abstract
Oil and gas projects are very complex with huge budget therefore they are easy to raise change during execution of project. A lot of factors affect the project during execution of the project. Many problems could happen unforeseeably to the upcoming part of the project. Engineering Procurement Construction (EPC) process is complex and related to a large variety of variables therefore occurrence of changes in the scope of work is almost inevitable. Many factors such as financing, definition of work and regulatory matters also insert a certain degree of uncertainty into the project. The management of the change is very significant to prevent the impact of change order. Management system and identification cause of change should be play important role. The finding out what is repetitive causes will help Project team has a focal point to manage change order.
The causes of change are classified into 7 types which are based on the various parameters such as specification, scope of work, contract, schedule, etc. All of these changes are defined and analyzed.
In order to know how they administer in term of time and cost impact, this research has been assessed the 5 case studies and analysis is based on the cost estimate system, cost control, planning. Control research refers to the change order management system as per historical data of projects to identify the cause and the impact of change order. After studying and analyzing five different case studies, it has been found that the repetitive cause of change orders are alteration to scope of work. This happens due to the poor project management systems as estimation system, change decision, change basis of design, location, lack of estimation of scope of work and change order procedures.
Change order in oil and gas sector require leaders who can balance budgets and launch schedules and stay on task, because if a project is deemed too costly or late, it can delay the whole mission for months. Cost impact in construction phase is very high; therefore it is needed to pay attention during this period. To reduce change order, the scope of work should be clear. Cost estimates system use contingency in estimating a budget to cover rick, labor, project management system use responsibility break down, select expert vendor to supply material.
Time Impact in design phase is highest because of the following lack of communication, many deviations in design, change location and change design basis.
It is necessary to establish a change order procedure system to ensure effective project execution. A change management system will help a company to be ready to cope with changes and support smooth execution of projects.
Mr. Le Dang Thuc made a research which main objective was to study the change order management in EPC Oil & Gas Projects. The other objectives of his research were to: (1) investigate the different kinds of change order in oil and gas project; (2) assess the impact of change order in terms of cost and time; (3) investigate the change order process in oil and gas project; and (4) recommend ways to improve change order management in oil and gas.
Conclusion
Administering impact of change order in EPC oil and gas project is very significant to reduce time and cost and guarantee the success of the project. In order to do that, management of cost and time attached special importance to invest and innovate. There are five key concepts to manage impact with cost such as design cost breakdown structure, cost estimating, setting contingency, cost monitoring & control. The setting of contingency in contract price is to cover the cost in order to reduce risk and the unforeseeable events. To manage change order in term of time, the baseline and progress must be updated and reported.
In this study, several cause of change order were identified: alteration to specification, alteration to scope of work, alteration to contract, alteration to schedule, in which activity is unsafe under certain conditions; activity does not meet legal or regulatory requirements and others (example weather, political climate, etc).
Impacts of change order
According to five case studies, the impacts of change order in terms of additional cost are alteration to Scope of Work, alteration to Specification, others (Bad weather, Crane broken), and activity is unsafe under certain conditions. While the impacts of change order in terms of time are alteration to scope of work and others (Bad weather, broken Crane). Frequent types of change order were also identified such as alteration to scope of work, alteration to specification; activity is unsafe under certain conditions, Others (Bad weather, broken Crane), and alteration to schedule.
Time and cost impacts play an important role to prevent more extra time and cost during the execution. In CNV cases, it showed that the cost impact in construction phase is almost always high, as it is related to changes in costs of materials, risks in construction, designing, under pressure of schedule progress, and labor requirements during certain times of year, etc. Contract management is very complex and involves many phases, especially in oil and gas projects. Factors such as time, cost and quality have been managed strictly and change order forms are core parts of contract administration.
After studying and analyzing five different case studies, it has been found that the main cause of change order is the alteration to scope of work (78%). This happens due to reason such as change decision, change basis of design, location, and lack of estimation of scope of work. Alteration to scope of work is also the most cautious change order. This should pay more attention in contract dealings and should avoid happening. If there are alterations to scope of work, it will affect so much to project in term of cost and scheduling of project. Alteration to scope of work should be reduced and become a lessons learned for future project.
Change Order Process
Change order procedure is very significant to manage changes. This thesis shows a procedure for oil and gas project with 3 scenarios:
1. Client Originated changes - In the event that the Client requests the Contractor to prepare an estimate for a potential change, it shall be made formally by an instruction in writing from the Client. After the review and data input including time and cost, cause of change, the contractor will send VR to client for approval within a time frame. The client will check the VR with their requirement and issue a Variation order to execute project.
2. Contractor originated changes - Contractor identifies the change. They check the change in terms of time and cost, the relation with Client account, and then send to Client for review and approval. Within reasonable time, Client shall endorse the VR and return to Contractor. Client will follow this up with the issuance of VO.
3. Subcontract related changes - When changes occur, Subcontractor may consider giving rise to a claim for additional costs. The Subcontractor will immediately notify the Contractor via official communication. The Contractor responds by reviewing and approves the SVR.
These procedures will help company to be ready to cope with the change, as well as support for smooth execution of the project. To implement this procedure, all member need to understand and each step must be clear. To improve change order, system should be audited many times and innovated after seeing the mistake of sequence. The Project manager responds to guide all parties and all member of project team for clear and ready application.
Recommendation
In order to reduce change order, the project management system should be improved and include the following factors:
His thesis abstract is copied and posted.
Abstract
Oil and gas projects are very complex with huge budget therefore they are easy to raise change during execution of project. A lot of factors affect the project during execution of the project. Many problems could happen unforeseeably to the upcoming part of the project. Engineering Procurement Construction (EPC) process is complex and related to a large variety of variables therefore occurrence of changes in the scope of work is almost inevitable. Many factors such as financing, definition of work and regulatory matters also insert a certain degree of uncertainty into the project. The management of the change is very significant to prevent the impact of change order. Management system and identification cause of change should be play important role. The finding out what is repetitive causes will help Project team has a focal point to manage change order.
The causes of change are classified into 7 types which are based on the various parameters such as specification, scope of work, contract, schedule, etc. All of these changes are defined and analyzed.
In order to know how they administer in term of time and cost impact, this research has been assessed the 5 case studies and analysis is based on the cost estimate system, cost control, planning. Control research refers to the change order management system as per historical data of projects to identify the cause and the impact of change order. After studying and analyzing five different case studies, it has been found that the repetitive cause of change orders are alteration to scope of work. This happens due to the poor project management systems as estimation system, change decision, change basis of design, location, lack of estimation of scope of work and change order procedures.
Change order in oil and gas sector require leaders who can balance budgets and launch schedules and stay on task, because if a project is deemed too costly or late, it can delay the whole mission for months. Cost impact in construction phase is very high; therefore it is needed to pay attention during this period. To reduce change order, the scope of work should be clear. Cost estimates system use contingency in estimating a budget to cover rick, labor, project management system use responsibility break down, select expert vendor to supply material.
Time Impact in design phase is highest because of the following lack of communication, many deviations in design, change location and change design basis.
It is necessary to establish a change order procedure system to ensure effective project execution. A change management system will help a company to be ready to cope with changes and support smooth execution of projects.
Friday 1 October 2010
Special Purpose Vehicle in Toll-Road Project Development: A Case Study of the National Highway 14 Project in Vietnam
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Wednesday 29 September 2010
Improving Quality Assurance in Construction: Can Tho Storage Tank Capacity Enhancement Project Case Study, Vietnam
After implementing the first stage of the quality assurance and product improvement in construction program, Vietnam Minister of construction assessed that although the program has achieved success in the first stage, there are some difficulties need to be overcome comparing with the goal and requirements planned. Annually, accidents still happen on working site due to violation of quality management process and procedure. Lacks of owner’s care, some commissioning buildings have no operation and maintenance manuals. This leads to degradation, reduction of the building’s life span and become unsecured in operation (instruction of Vietnam Ministry of construction, 2006).
Quality in construction is measured through time, cost and scope in traditional way. Andrew argued that these indicators are simple and crude to gauge the project quality. Owners are more quality-driven than price and value driven (Dainty, 2003). Especially, in oil and gas facilities, expensive equipments related to each other in manufacturing line. If one component fails, the other will be affected like the domino effect. So it is necessary to recognize other components affecting construction quality in each stage of project life cycle through assessing effectiveness and efficiency of construction processes. From that point, processes can improve that satisfy the external and internal customers. As a result, the existence and success of Vietnam enterprises are confirmed in local and international arena as well.
Mr. Duong Thanh Hai made a study which main three objectives were: (1) modeling the construction quality assurance activities from design to commissioning in traditional procurement; (2) investigating problems in term of effectiveness and efficiency of processes and sub-processes in the model that affect quality issues; and (3) developing a tentative model that incorporates construction activities and quality improvement approaches addressing such problems.
Conclusion
1. Modeling the construction quality assurance activities from design to commissioning in traditional procurement
The case was the storage tank project using design-bid-build procurement approach. The owner had in-house staff working as construction management. The owner stated their needs to design consultant. The designer mapped out all construction law, codes and standards that have to be complied with and to control and assure project quality.
Based on the design, the owner gave the quality requirements to site surveyor, supervisor, and contractor. Then these people submitted their quality plans that satisfy those requirements. A quality assurance model was developed based on the discussion with project participants and analyzing archive. The model shows interaction among involved parties from design to commissioning.
2. Investigating problems in term of effectiveness and efficiency of processes and sub-processes in the model that affect quality issues
There were five major problems happened in the project because the involved parties violated the quality plan and also because of the gaps on those quality plans itself.
Problem 1: design materials unavailability in the market
The design materials are only available during the time that the consultant planned the design. During the procurement, the owner realized shortage then the designer had to re-work.
Problem 2: delay in pressing piles
Although all operating procedures were clearly stated in the quality plans, mistakes still took place. The bearing capacities of pressed piles were not the same as the designed figures. According to the plan, the contractor would have informed the designer when problems happened but they did not. As a result, the schedule was delayed.
Problem 3: supply delay of floating roofs
Floating roof equipments were supplied two months late. Those equipment trades were solely based on contract which the contractor cannot assure the supply on time. The contract had just compensated direct loss for contractor. Other indirect loss such as reputation, administrative, low morale actually cannot be recovered.
Problem 4: valves leakage
Design valves were not received on time because of the delay in supply. The contractor used temporary valves to replace designed valves during tank process testing. Unfortunately, the temporary valves cannot bear the oil load, so they leaked. Some arrangements should be carried out to make sure that supplies are available when needed rather than recovered from contract breach penalty.
Problem 5: oil leakage of existing tank system
Underground pipeline were maintained every 10 year. However, those pipelines failed one year before that time. Therefore, one burning accident happened during the transferring process of existing tanks. The underground pipeline should be monitored gradually during that period.
3. Developing a tentative model that incorporates construction activities and quality improvement approaches addressing such problems
In Petromekong, most of construction applied traditional procurement. Contractor requested for supplier’s quotation after they had got bid. However in oil and gas industry, oil constructions usually need long lead time materials and equipment. For this reason, the contractor faces delay of supply sometimes. The study illustrated “supplier partnership” approach should be used in such type of construction to improve procurement quality. Petromekong in-house investing department will arrange partnership with suppliers beforehand. Then the owner, suppliers, designer will optimize time, cost, quality and satisfaction trade-off for important long lead time equipments and materials.
A chain of tools is suggested to detect and solve those problems in advance. Quality improvement tools such as flowchart, check sheet, problem source investigating chart, brainstorming, affinity diagram, fish bone diagram, nominal group technique should be used orderly to improve certain construction processes. Such types of process are repetitive, measurable and have clear procedures. Company can monitor and record performance of those processes regularly. Whenever problems happen, company can immediately recognize warning signs and take actions beforehand.
His thesis abstract is copied and posted.
Abstract
Since Vietnam has had oil terminal system development plan, more tank projects have been invested to expand storage capacity. However, quality violation has been alert obviously. From that point, the study suggests model to identify and eliminate those problems beforehand.
The study used one tank project as case study to fulfill three objectives. Firstly, quality assurance processes in traditional procurement were modeled. Then, the researcher investigated problems adhering to these processes. Finally, an improving quality model was suggested addressing those problems.
The case study was collected from Petromekong Corporation located in southern part of Vietnam. The researcher utilized focus group qualitative method. The researcher discussed with investing department of Petromekong to elicit quality assurance activities of project participants. Then, the researcher defined five problems existing in the case: deigning unavailable material on market, delaying in pressing piles, supply delay of floating roofs, leakage of valves and oil leakage of existing tank system. The researcher looked for some quality improvement approaches from manufacturing industry since. Finally, after conducting expert’s assessment, the researcher demonstrated “supplier partnership” approach should be used in long lead time materials and equipment construction to improve procurement quality. Illustrating pile driving and oil transferring processes as examples, the researcher suggested a chain of tools to detect and solve those problems in the case study beforehand. Such tools are flowchart, check sheet, problem source investigating chart, brainstorming, affinity diagram, fish bone diagram, nominal group technique should be used orderly to improve repetitive, measurable and clear procedure construction processes.
Key word: quality assurance, Petromekong, oil storage tank, traditional procurement, quality improvement, construction problems, case study, Vietnam.
Quality in construction is measured through time, cost and scope in traditional way. Andrew argued that these indicators are simple and crude to gauge the project quality. Owners are more quality-driven than price and value driven (Dainty, 2003). Especially, in oil and gas facilities, expensive equipments related to each other in manufacturing line. If one component fails, the other will be affected like the domino effect. So it is necessary to recognize other components affecting construction quality in each stage of project life cycle through assessing effectiveness and efficiency of construction processes. From that point, processes can improve that satisfy the external and internal customers. As a result, the existence and success of Vietnam enterprises are confirmed in local and international arena as well.
Mr. Duong Thanh Hai made a study which main three objectives were: (1) modeling the construction quality assurance activities from design to commissioning in traditional procurement; (2) investigating problems in term of effectiveness and efficiency of processes and sub-processes in the model that affect quality issues; and (3) developing a tentative model that incorporates construction activities and quality improvement approaches addressing such problems.
Conclusion
1. Modeling the construction quality assurance activities from design to commissioning in traditional procurement
The case was the storage tank project using design-bid-build procurement approach. The owner had in-house staff working as construction management. The owner stated their needs to design consultant. The designer mapped out all construction law, codes and standards that have to be complied with and to control and assure project quality.
Based on the design, the owner gave the quality requirements to site surveyor, supervisor, and contractor. Then these people submitted their quality plans that satisfy those requirements. A quality assurance model was developed based on the discussion with project participants and analyzing archive. The model shows interaction among involved parties from design to commissioning.
2. Investigating problems in term of effectiveness and efficiency of processes and sub-processes in the model that affect quality issues
There were five major problems happened in the project because the involved parties violated the quality plan and also because of the gaps on those quality plans itself.
Problem 1: design materials unavailability in the market
The design materials are only available during the time that the consultant planned the design. During the procurement, the owner realized shortage then the designer had to re-work.
Problem 2: delay in pressing piles
Although all operating procedures were clearly stated in the quality plans, mistakes still took place. The bearing capacities of pressed piles were not the same as the designed figures. According to the plan, the contractor would have informed the designer when problems happened but they did not. As a result, the schedule was delayed.
Problem 3: supply delay of floating roofs
Floating roof equipments were supplied two months late. Those equipment trades were solely based on contract which the contractor cannot assure the supply on time. The contract had just compensated direct loss for contractor. Other indirect loss such as reputation, administrative, low morale actually cannot be recovered.
Problem 4: valves leakage
Design valves were not received on time because of the delay in supply. The contractor used temporary valves to replace designed valves during tank process testing. Unfortunately, the temporary valves cannot bear the oil load, so they leaked. Some arrangements should be carried out to make sure that supplies are available when needed rather than recovered from contract breach penalty.
Problem 5: oil leakage of existing tank system
Underground pipeline were maintained every 10 year. However, those pipelines failed one year before that time. Therefore, one burning accident happened during the transferring process of existing tanks. The underground pipeline should be monitored gradually during that period.
3. Developing a tentative model that incorporates construction activities and quality improvement approaches addressing such problems
In Petromekong, most of construction applied traditional procurement. Contractor requested for supplier’s quotation after they had got bid. However in oil and gas industry, oil constructions usually need long lead time materials and equipment. For this reason, the contractor faces delay of supply sometimes. The study illustrated “supplier partnership” approach should be used in such type of construction to improve procurement quality. Petromekong in-house investing department will arrange partnership with suppliers beforehand. Then the owner, suppliers, designer will optimize time, cost, quality and satisfaction trade-off for important long lead time equipments and materials.
A chain of tools is suggested to detect and solve those problems in advance. Quality improvement tools such as flowchart, check sheet, problem source investigating chart, brainstorming, affinity diagram, fish bone diagram, nominal group technique should be used orderly to improve certain construction processes. Such types of process are repetitive, measurable and have clear procedures. Company can monitor and record performance of those processes regularly. Whenever problems happen, company can immediately recognize warning signs and take actions beforehand.
His thesis abstract is copied and posted.
Abstract
Since Vietnam has had oil terminal system development plan, more tank projects have been invested to expand storage capacity. However, quality violation has been alert obviously. From that point, the study suggests model to identify and eliminate those problems beforehand.
The study used one tank project as case study to fulfill three objectives. Firstly, quality assurance processes in traditional procurement were modeled. Then, the researcher investigated problems adhering to these processes. Finally, an improving quality model was suggested addressing those problems.
The case study was collected from Petromekong Corporation located in southern part of Vietnam. The researcher utilized focus group qualitative method. The researcher discussed with investing department of Petromekong to elicit quality assurance activities of project participants. Then, the researcher defined five problems existing in the case: deigning unavailable material on market, delaying in pressing piles, supply delay of floating roofs, leakage of valves and oil leakage of existing tank system. The researcher looked for some quality improvement approaches from manufacturing industry since. Finally, after conducting expert’s assessment, the researcher demonstrated “supplier partnership” approach should be used in long lead time materials and equipment construction to improve procurement quality. Illustrating pile driving and oil transferring processes as examples, the researcher suggested a chain of tools to detect and solve those problems in the case study beforehand. Such tools are flowchart, check sheet, problem source investigating chart, brainstorming, affinity diagram, fish bone diagram, nominal group technique should be used orderly to improve repetitive, measurable and clear procedure construction processes.
Key word: quality assurance, Petromekong, oil storage tank, traditional procurement, quality improvement, construction problems, case study, Vietnam.
Friday 24 September 2010
Public Private Partnership in Low-Income Housing Development in Vietnam
Infrastructure development plays a vital role in economic growth and poverty reduction (WB, 2003). Traditionally, infrastructure systems have been provided by public sector. However, the increasing need of new infrastructure development and maintenance of existing infrastructure systems demands a huge capital investment which cannot be achieved by public fund. Public-Private Partnership delivery has become a solution for funding problem by mobilizing private sector fund into infrastructure investment (ADB, 2008). With their innovation and management skill, private participation can increase productivity and efficiency of operation, improve the quality of service and reduce service price compared to public sector provision (ADB, 2008).
In order to keep pace with the increase in housing demand and improve poor housing condition, scaling up investment in housing sector is the urgent focus of Vietnamese government. And in order to reduce state budget investment, Vietnam government is currently seeking possible solutions to develop public private partnership in infrastructure investment, and especially in low-income housing development.
Mr. Truong Ngoc Quy made a study which main objective is to propose the possible solution to encourage private participate in low-income housing development in HCMC. In accomplishing the main objective, the following sub-objectives have to achieve:
1. Develop general public private partnership framework in low-income housing development and its assessment criteria.
2. Investigate current practice of public private partnership in low-income housing development in Vietnam using the developed general model
3. Assess current practice of public private partnership of low-income housing development in Vietnam based on developed assessment criteria.
4. Propose the recommendation for setting up applicable public private partnership model in low-income housing development in Vietnam.
Research Findings
1. General public private partnership model in low-income housing development and its assessment criteria
Five factors of PPP in LIH development which are constructed from extensive literature review and expert verification are (1) government support to private participation, (2) government imposition on private party, (3) government subsidies for low-income people, (4) control target group policy, and (5) tenure system. Also from literature review and expert verification, the nine assessment criteria which are constructed and divided into 3 groups related to three main parties in low-income housing development are (1) affordability, accessibility, and availability for low-income people (2) profitability, availability, accessibility of incentives for private developers (3) sustainability, effectiveness, and inclusiveness.
2. Investigate current practices of public private partnership in low-income housing development in Vietnam
Many issues related to government support for private sector, imposition on developers, subsidies for LIP, control of target group, and tenure system in Vietnam. Facing the problem related to government support, private developers in Vietnam cannot receive some important incentives such as land and financing subsidies which are promised to give by government. The maximum profit margin of 10% and minimum cost recovery at least for 10 years for both hire-purchase and installment payment or for 20 years for rental houses make this market segment unattractive to private sector. The minimum planning and designing standard, and controlling maximum profit margin are lack of detail guideline for public authority and private developer during implementation. The housing finance subsidy in government policy is not strong to provide affordable loan condition to low-income people. Moreover, the loan condition actual provided to LIP is less favorable than what is introduced in policy. Because of under-table money using in allocation system and lack of detailed guidelines to prevent resale and renting out allocated units, most of the housing units are occupied by ineligible people. The actual tenure system is less favorable to low-income people than the imposed tenure system in government policy due to lack of profit in planning tenure system of government policy.
3. Assess the current practice of public private partnership in low-income housing development in Vietnam
Most low-income people in Vietnam face difficulty in affording payment condition and serving debt due to high debt service, high portion of down payment, and high housing price. The quantity of housing available to LIP is low, and the housing finance subsidy is also low in term of both quantity and quality. Housing subsidies including low-income housing subsidized units, housing finance and subsidized information is difficult to access for LIP. The low-profit margin and long term cost recovery set by government is not attractive for private participation. Some important incentives such as off-take guarantee and faster legislation procedure are not introduced in government policy and most incentives in government regulation are not provided in reality. Moreover, most provided incentives such as tax, financing, and basis infrastructure are not given to developer because they are not included in project cost when calculating profit margin. Complex legislation procedure in receiving incentives makes it difficult for developer to access these incentives. The LIH program does not provide housing for migrant and not focus on non-government officials due to its strict selection criteria, and does not cover other housing need due to unsuitable minimum design standard. Another issue related to effectiveness of program is that it is not effective in attracting private participation due to low profit set by government, reducing housing price because of the profit margin ceiling policy, and allocating housing to eligible people due to under-table money using and unclear controlling guideline after sale. Because of its low actual incentives and low actual subsidies provided, the financial sustainability of government budget is not affected much.
His thesis abstract is copied and posted.
ABSTRACT
One of global problem is inadequate condition of urban housing, and it is most serious issues in developing countries. The pressing issue of Vietnam at the mean time is providing adequate housing for residents, especially for poor people living in urban area. In order to reduce state budget investment in housing development for the poor, Vietnam government is currently seeking possible solutions to develop public private partnership in low-income housing development. However, it is still lack of public private partnership in low-income housing development even though government has implemented incentives policy to encourage private participation since 2001. The purpose of this study is seeking possible solution to develop practice of public private partnership in low-income housing development.
This research was conducted by case study methodology to fulfill four study objectives. Firstly, general framework and its assessment criteria for public private partnership in low-income housing development were developed and verified by expert. Secondly, the current practices of public private partnership in low-income housing development in Vietnam are investigated base on developed general framework. Thirdly, following developed assessment criteria, the current practices of public private partnership in low-income housing development in Vietnam are assessed. Fourthly, recommendation for setting up applicable public private partnership in low-income housing development in Vietnam is made.
The result of this study found there is a big gap between government policy and actual implementation of public private partnership in low-income housing development in Vietnam. The government program is not effective in solving housing needs. Low-income people still face difficult in buying the houses. The low-income housing market is not attractive to private developer. Housing finance institute, housing saving fund, and national housing authority are recommended to be set up and play important roles in supporting both demand side and supply side of low-income housing market.
In order to keep pace with the increase in housing demand and improve poor housing condition, scaling up investment in housing sector is the urgent focus of Vietnamese government. And in order to reduce state budget investment, Vietnam government is currently seeking possible solutions to develop public private partnership in infrastructure investment, and especially in low-income housing development.
Mr. Truong Ngoc Quy made a study which main objective is to propose the possible solution to encourage private participate in low-income housing development in HCMC. In accomplishing the main objective, the following sub-objectives have to achieve:
1. Develop general public private partnership framework in low-income housing development and its assessment criteria.
2. Investigate current practice of public private partnership in low-income housing development in Vietnam using the developed general model
3. Assess current practice of public private partnership of low-income housing development in Vietnam based on developed assessment criteria.
4. Propose the recommendation for setting up applicable public private partnership model in low-income housing development in Vietnam.
Research Findings
1. General public private partnership model in low-income housing development and its assessment criteria
Five factors of PPP in LIH development which are constructed from extensive literature review and expert verification are (1) government support to private participation, (2) government imposition on private party, (3) government subsidies for low-income people, (4) control target group policy, and (5) tenure system. Also from literature review and expert verification, the nine assessment criteria which are constructed and divided into 3 groups related to three main parties in low-income housing development are (1) affordability, accessibility, and availability for low-income people (2) profitability, availability, accessibility of incentives for private developers (3) sustainability, effectiveness, and inclusiveness.
2. Investigate current practices of public private partnership in low-income housing development in Vietnam
Many issues related to government support for private sector, imposition on developers, subsidies for LIP, control of target group, and tenure system in Vietnam. Facing the problem related to government support, private developers in Vietnam cannot receive some important incentives such as land and financing subsidies which are promised to give by government. The maximum profit margin of 10% and minimum cost recovery at least for 10 years for both hire-purchase and installment payment or for 20 years for rental houses make this market segment unattractive to private sector. The minimum planning and designing standard, and controlling maximum profit margin are lack of detail guideline for public authority and private developer during implementation. The housing finance subsidy in government policy is not strong to provide affordable loan condition to low-income people. Moreover, the loan condition actual provided to LIP is less favorable than what is introduced in policy. Because of under-table money using in allocation system and lack of detailed guidelines to prevent resale and renting out allocated units, most of the housing units are occupied by ineligible people. The actual tenure system is less favorable to low-income people than the imposed tenure system in government policy due to lack of profit in planning tenure system of government policy.
3. Assess the current practice of public private partnership in low-income housing development in Vietnam
Most low-income people in Vietnam face difficulty in affording payment condition and serving debt due to high debt service, high portion of down payment, and high housing price. The quantity of housing available to LIP is low, and the housing finance subsidy is also low in term of both quantity and quality. Housing subsidies including low-income housing subsidized units, housing finance and subsidized information is difficult to access for LIP. The low-profit margin and long term cost recovery set by government is not attractive for private participation. Some important incentives such as off-take guarantee and faster legislation procedure are not introduced in government policy and most incentives in government regulation are not provided in reality. Moreover, most provided incentives such as tax, financing, and basis infrastructure are not given to developer because they are not included in project cost when calculating profit margin. Complex legislation procedure in receiving incentives makes it difficult for developer to access these incentives. The LIH program does not provide housing for migrant and not focus on non-government officials due to its strict selection criteria, and does not cover other housing need due to unsuitable minimum design standard. Another issue related to effectiveness of program is that it is not effective in attracting private participation due to low profit set by government, reducing housing price because of the profit margin ceiling policy, and allocating housing to eligible people due to under-table money using and unclear controlling guideline after sale. Because of its low actual incentives and low actual subsidies provided, the financial sustainability of government budget is not affected much.
His thesis abstract is copied and posted.
ABSTRACT
One of global problem is inadequate condition of urban housing, and it is most serious issues in developing countries. The pressing issue of Vietnam at the mean time is providing adequate housing for residents, especially for poor people living in urban area. In order to reduce state budget investment in housing development for the poor, Vietnam government is currently seeking possible solutions to develop public private partnership in low-income housing development. However, it is still lack of public private partnership in low-income housing development even though government has implemented incentives policy to encourage private participation since 2001. The purpose of this study is seeking possible solution to develop practice of public private partnership in low-income housing development.
This research was conducted by case study methodology to fulfill four study objectives. Firstly, general framework and its assessment criteria for public private partnership in low-income housing development were developed and verified by expert. Secondly, the current practices of public private partnership in low-income housing development in Vietnam are investigated base on developed general framework. Thirdly, following developed assessment criteria, the current practices of public private partnership in low-income housing development in Vietnam are assessed. Fourthly, recommendation for setting up applicable public private partnership in low-income housing development in Vietnam is made.
The result of this study found there is a big gap between government policy and actual implementation of public private partnership in low-income housing development in Vietnam. The government program is not effective in solving housing needs. Low-income people still face difficult in buying the houses. The low-income housing market is not attractive to private developer. Housing finance institute, housing saving fund, and national housing authority are recommended to be set up and play important roles in supporting both demand side and supply side of low-income housing market.
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